In Zero to One, PayPal co-founder and venture capitalist Peter Thiel contends that creating new things is both the best way for a company to profit and the only way for humans to progress. However, he is concerned that technological progress has stagnated today. Zero to One presents his solution to this problem: nurturing small startups developing revolutionary new technologies.
In the book, Thiel weaves abstract philosophy and practical advice together, but in this guide, we’ll discuss them separately. First, we’ll unpack the foundational philosophy that motivates Thiel’s approach. Then, we’ll consider his advice on running a startup. We’ll also compare Thiel’s perspective with that of other innovation experts, like W. Chan Kim and Renée Mauborgne, authors of Blue Ocean Strategy, and Geoffrey Moore, author of Crossing the Chasm.
Thiel argues that social progress requires technological progress, specifically “vertical” technological progress. He differentiates between horizontal and vertical progress as follows:
(Shortform note: Thiel’s contrast between horizontal and vertical progress parallels other authors’ delineation between sustaining and disruptive innovation. For example, in The Innovator’s Dilemma, Clayton Christensen defines a disruptive innovation as a new product that changes the market landscape. Disruptive innovations correspond to Thiel’s concept of vertical progress because they redefine the market by creating capabilities that didn’t exist before. Meanwhile, Christensen defines a sustaining innovation as one that doesn’t disrupt the market—it’s just more of the same, like Thiel’s concept of horizontal progress.)
To illustrate his point, Thiel explains that from 1914 to 1971, businesses in the United States created a lot of new technologies, many of which improved Americans’ standard of living and had a positive impact on society. But from the 1970s to the present, he says this vertical progress changed into horizontal progress, which led to greater competition for resources.
Thiel goes on to say that globalization is the ultimate example of horizontal progress. Businesses take products and production methods that worked in the West and replicate them in less-developed countries. As products become more universally available, the standard of living becomes more homogeneous throughout the world.
But, as more people make, buy, and use the same types of products, they also compete for the same types of resources. For example, as automobile usage spread from the United States and Europe to Asia and Africa, more countries began competing for a share of the world’s supply of gasoline. Thiel argues that if everyone is competing for the same resources, there won’t be enough to go around, leading to conflict instead of progress.
Vertical Progress and Resource Creation
Thiel highlights how horizontal progress results in competition for resources and asserts that vertical progress provides a solution to the problem of resource scarcity, but he doesn’t explicitly describe how vertical progress alleviates competition for resources. In Homo Deus, Yuval Noah Harari suggests that new technologies create new resources. This explains why vertical progress may reduce competition.
Harari highlights the issue of global resource depletion. He points out that although raw materials can be depleted, humans tend to find new resources or develop new ways of making existing resources more useful. He discusses how humans once relied on oil and coal exclusively for energy production, but have since developed new energy sources, such as solar power. Similarly, the invention of the fission reactor made uranium a new source of energy.
The same principle can be seen at work even in antiquity. In the Bronze Age, nobody thought of iron ore as a valuable resource, but then the development of iron-smelting technology made iron a viable substitute for bronze.
This idea of resource creation bolsters Thiel’s argument: When more people adopt the same technology (horizontal progress), there’s more competition for resources, but vertical progress creates new resources, reducing the competition for them.
Thiel asserts that horizontal progress and the competition it creates are bad for both business and society.
As a business owner, you want to make a profit. Competition eats into your profits—whether you’re competing with other producers for the same resources from the same suppliers (which drives up your production costs) or competing for customers in a market where there are many equivalent products.
Thiel’s solution to the problem of competition is the technological monopoly. He argues that monopolies are good for society, as well as good for business. When a business has a monopoly (meaning it faces no significant competition in the market where it operates), it has the freedom to consider the welfare of its employees and the broader impact of its products and operations on society because profits are assured. By contrast, competitors locked in a daily struggle for survival have to do everything in their power to minimize expenses and don’t have enough resources left over to consider their impact on...
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(Shortform note: While our guide sticks to the general structure of Thiel’s book, we’ve made a few adjustments: We’ve grouped Chapters 9 and 10 together because they discuss similar ideas, and we’ve switched the order of Chapters 12 and 13 so as to present Thiel’s ideas in a more streamlined manner.)
Some animals have a drive to build things like dams, but only humans have the ability to invent entirely new things. In Zero to One, PayPal co-founder and venture capitalist Peter Thiel contends that creating new things is the best way to profit economically, as well as the only path of human progress.
This book, written with Blake Masters, is about launching companies that create new things. It stems from a course Thiel taught at Stanford in 2012 on startups. Masters was a student in the class and his notes, which were...
Thiel likes to ask job candidates what he calls a contrarian question: “What important truth do few people agree with you on?” The best answers provide insight into the future. Thiel’s answer is that technology will dictate the world of the future, while most people think globalization will.
The future will be an outgrowth of the present, but there will be differences. The future may be further away or closer than we think, depending on how fast we progress: When change is rapid, the future comes upon us swiftly, but when things stay the same for a long time, the future is a long way away.
Progress can be either horizontal or vertical. Horizontal or expansive progress results from duplicating success—going from 1 to n. We can easily envision this kind of progress because it’s much like the present. Vertical or intensive (focused) progress requires originality—going from 0 to 1. It’s more difficult to envision because we’ve never seen it before.
An example of horizontal progress would be building a dozen horse-drawn carriages based on the design of an existing one. An example of vertical progress would be building the first automobile to...
In the previous chapter, we discussed Thiel’s “contrarian question,” namely, what significant truth have you discovered that nobody else believes? Thiel affirms that you can sometimes answer this question by working backwards. First, ask what is the conventional wisdom that everyone believes. Then consider what the opposite of that would be. According to Thiel, the opposite of conventional wisdom is more likely to be true than the conventional wisdom. That said, he also emphasizes the importance of thinking for yourself rather than blindly following or opposing the crowd.
As a case study in the dangers of following conventional wisdom, Thiel recounts the dot-com bubble of the 1990s. Prior to that time, most people understood that businesses need to make money, but for a few years it became fashionable to believe that publicity and traffic were more important than profits. Companies sustained large losses under the delusion that they were investing in their future success. The bubble broke circa 2000, when investors realized that this cycle of unending losses was untenable, and the lessons learned from the crash became part of conventional business wisdom.
But did we learn...
Thiel observes that anyone starting a company needs to decide what kind of company to start. Of course, there’s only one kind of company that’s worth starting: a profitable one. To be profitable, your company needs to create something of value, and also monetize a portion of the value that it creates.
Thiel argues that to secure a fair share of the value that your company creates, you need to be a monopoly. If you have direct competitors, price competition will drive your profit margins to zero. He illustrates this concept by comparing the economic models of “perfect competition” and “monopoly.”
In economic theory, “perfect competition” happens when there are many suppliers of a given product and there is no appreciable difference between their products. Thiel says classical economists consider this an ideal situation because the market is governed completely by supply and demand: If demand increases, prices will rise, motivating suppliers to increase production or new suppliers to enter the market. If supply overshoots demand, prices will fall and suppliers will cut back or go out of business. So in the long run, supply and demand remain...
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Thiel believes that the idea of healthy competition is a myth. But it’s a myth that is so deeply ingrained in our society it tends to exercise a destructive influence on our business strategies. As such, Thiel spends a chapter exposing and debunking the myth.
He says the school system instills the importance of competition in students from an early age by forcing students to compete for grades. Schools also tend to teach a uniform curriculum, rather than catering to individual students’ strengths and interests. This parallels the model of perfect competition by minimizing the differentiation between products—in this case, the “product” is a student’s work.
Similarly, workers must compete for raises and promotions by conforming to companies’ performance expectations. The perception of conflict is so pervasive that war metaphors in business are commonplace: Companies talk about their labor force, their marketing campaigns, and their target customers. According to Thiel, this creates a competition mentality that blinds us to opportunities to create new things.
According to Thiel, **businesses often get so...
Thiel presents creative monopolies as the solution to destructive competition, but he also cautions that creating a technological monopoly does not in and of itself guarantee the success of your startup. Thiel measures the worth of a startup by considering how much profit it has the potential to bring in ten or twenty years down the road.
Thiel illustrates the importance of long-term value by contrasting traditional print media companies with social media platforms. Successful print media companies bring in steady profits, but their stock is valued relatively low because they have little potential for future growth. By contrast, social media companies often fail to make a profit during their first decade of operation, yet their stock value may soar because their revenues are growing exponentially, promising significant growth and future profitability.
Thiel cautions that many companies fall into the trap of focusing on short-term profits instead of long-term revenue potential because short-term profits are easier to track. But fixating on metrics that reflect only short-term performance can steer you away from long-term profitability. To be profitable in the long run,...
How your company chooses and expands its markets is critical to its success. You should target a small niche that you can dominate, then slowly expand to related markets and eventually larger markets while maintaining monopoly control.
Think about your business or a potential future business. How would you define the market (target customer and size, other potential players)? How could you check to make sure that your intended market actually exists?
According to Thiel, the way you think about the future will influence how (and whether) you plan for the future, and the plans that you make will affect your future, or that of your startup company.
Thiel acknowledges that there is an ongoing debate in the business community about the relative importance of planning versus luck in determining the success of a venture. In particular, he quotes Malcolm Gladwell as saying that success is mostly a product of random chance. He also observes that Warren Buffet, Jeff Bezos, and Bill Gates all attribute their success at least partially to luck. If success is just a matter of luck, why bother with planning?
Yet Thiel argues that it’s a mistake to downplay the importance of planning. Today, most people equate luck with random chance, but he points out that this was not always the case. In the 18th and 19th centuries, most people believed there was a connection between your labor and your luck: The more you worked at something, the better your luck in that area became.
Thiel says there are basically four perspectives you can have about the future, depending on how you answer two...
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If you’re optimistic, you tend to think of the future as definable and definite, as something you can understand and shape. If you’re a pessimist, you think of it as uncertain and indefinite; since it's random, you can’t intelligently predict or plan for it.
What’s your view of the future? Are you an optimist or a pessimist? Explain your answer.
In the last chapter, we discussed the importance of planning. In this chapter, we’ll discuss an important principle that should influence your planning: the power law.
Thiel explains that many things, both in business and in nature, follow an exponential growth pattern, or “power law”: The bigger they get, the faster they grow. In situations where this is the case, a few entities that got started sooner or had other early advantages tend to become much larger than the average, even if they started out only slightly ahead. This leads to a distribution that is different from the familiar bell-curves and uniform distributions that we often assume when analyzing statistics.
In a power-law distribution, the largest entity is typically bigger, more valuable, or more powerful than all others combined. The second-largest is likewise bigger than the total of all those after it, and so on.
Also, in a power-law distribution, the top 20% of the entities typically...
Thiel returns to the “contrarian question” that he introduced in the first chapter: “What revolutionary truth do you know that no one else agrees with?” If you know something, especially something important, that nobody else does, then by definition, you have a secret. You need a secret to answer Thiel’s question, so he spends a chapter discussing secrets and how to find them.
Thiel’s favorite tactic to discover secrets is to look where nobody else is looking. Whether in business, science, or some other field, what questions do people in the mainstream refuse to address or investigate? Or what have they simply overlooked? Thiel calls this the “human approach” to discovering secrets, as opposed to the “natural approach,” which involves making comprehensive observations and analyzing the data to find new trends or new phenomena. He points out that often, these two methods lead to the same discoveries, but the human approach is typically more efficient.
He offers the dot-com and housing bubbles as an example of this principle: These bubbles were created by inefficiencies in the market, but no one was willing to question the efficiency of the...
Building a great company requires out-of-the-box thinking rather than following conventional wisdom. Often the truth is the opposite of what everyone believes.
Make a list of the most common conventional beliefs you’ve heard at your company (things that are assumed to be true) about its product(s) and market.
Thiel points out that the decisions you make when founding an organization will permanently shape how it operates in the future. You need to make the right decisions up front, because if you make mistakes at the formative stages of your startup, it may not be possible to fix them later. Thiel calls this principle “Thiel’s law,” and says that it applies to organizations of all types, whether businesses or governments.
As an example of how difficult it is for established organizations to change, Thiel points out how seldom the Constitution of the United States has been amended. The organizational structure of the US government is much the same as it was two hundred years ago, and it’s not likely to be changed, whether it still suits our needs well or not.
Thiel asserts that one thing you need to get right up front is the selection of your co-founders. In fact, he asserts that this is the most important decision you’ll make in founding a startup.
He even equates choosing a co-founder to choosing a marriage partner, claiming that the same issue of personal compatibility applies, and the consequences of incompatibility are just as severe. As an...
Thiel argues that startups should choose people for their initial team who are as similar as possible to enable the team to work cohesively and efficiently from the start.
In building a team for your company or a potential new business, what common qualities would you look for?
As we discussed in Chapter 2, one of the lessons learned from the dot-com crash was to focus on building a product that’s so good it sells itself, rather than trying to drive sales of a mediocre product with marketing hype. And, as we mentioned before, Thiel is concerned that this conventional wisdom dangerously downplays the importance of marketing.
He contends that developing a plan for how you will distribute your product is an integral part of developing your product. In fact, sometimes a revolutionary sales strategy is enough to elevate an existing product line to monopoly status. On the other hand, a poor sales strategy can be the death of a company with a sound product. In fact, Thiel says more companies fail due to faulty sales strategies than faulty products.
Furthermore, Thiel expresses concern that most entrepreneurs (and people in general) misunderstand the nature of marketing: They think advertising and sales pitches don’t work, because when they hear sales pitches or see advertisements, they don’t rush out and buy the products, nor do they see other people doing so.
Thiel explains that the purpose of advertising is to carve out a place for your product in...
Some entrepreneurs develop a great product but fail to plan for its distribution, or the process for selling the product (advertising, sales, marketing, and distribution). But customers aren’t going to buy it automatically. Distribution should be part of your product design.
Think of a product you currently sell or a potential product. What are your current or planned methods for marketing/selling it?
In Chapter 13, Thiel revisits many of the principles he presented in earlier chapters and puts them together into a checklist for success. He then elaborates on this checklist by discussing the clean-tech bubble of the early 2000s.
To position yourself for a successful startup, Thiel says you need seven things:
To succeed, a company must have solid answers to the following questions: Engineering: Is your technology a significant advance or only an incremental improvement? Timing: Is this the right time to sell this technology? Monopoly: Are you targeting a big share of a small market? People: Do you have the right people on your team? Distribution: Do you have a plan to market and sell your product? Durability: Will you dominate your market in the next 10 to 20 years? Secret: Have you identified a unique opportunity overlooked by everyone else?
Answer the above questions for your company or a potential future business.
Throughout the book, Thiel argues that developing new technology is the solution to the problem of competition. In Chapter 12, he addresses the concern that technology itself might begin competing with humans for resources.
In Thiel’s view, this concern stems primarily from a popular misconception that computers can be trained to do anything that humans do. He acknowledges that many computer scientists, particularly in academia, have devoted significant study to the problem of teaching computers to perform tasks that would otherwise be done by humans, but he points out that if anything, these studies only highlight the fact that humans and computers excel at different kinds of tasks. Even a low-end computer can solve arithmetic problems thousands of times faster than the world’s leading mathematicians. But by the same token, even a child easily outperforms the world’s leading supercomputers at tasks like object recognition and value judgements.
Thus, in Thiel’s view, computers and human workers don’t compete with each other—they complement each other. In the job market, computers don’t eliminate the need for human workers, they just empower human...
Thiel observes that eccentric tastes are a common trait of successful entrepreneurs, if not an outright essential one. To create something new and compelling, you need to think outside the box, and there is a direct correlation between how well you think outside the box and how far outside the “box” of normal conventions your lifestyle and interests lie.
Furthermore, Thiel notes that many influential founders of successful companies exhibited extreme and sometimes strange personality traits. He contemplates whether these traits were innate, deliberately cultivated, or purely fabricated by the media and concludes that in most cases they were the result of a feedback loop: These people genuinely had some extreme traits, which they themselves and people who knew them tended to exaggerate, and the more their reputations grew, the more they tried to live up to them.
In any case, he argues that...
In the concluding chapter to his book, Thiel contrasts four general views of the future of technological progress, which he attributes to Oxford processor Nick Bostrom:
1. The cyclical perspective: Technology will progress to some maximum threshold and then crash. After the crash, people will gradually rebuild and technology will advance again, eventually achieving about the same maximum level before it crashes again. The cycle will repeat itself indefinitely, with human technology oscillating between minimum and maximum values. Thiel acknowledges that many ancient civilizations held this perspective, but in the modern world he cannot conceive of any type of disaster that could realistically...
A key question that Thiel poses to entrepreneurs is, “What valuable company hasn’t been started yet?” Answering it requires discovering a secret—for instance, seeing untapped potential or solving a problem by looking at it in a new way.
Think of a problem, inconvenience, or opportunity you encountered in the past week. What was it?